Dishing out reward for hitting strategic goals creates value

Telecoms firm BT looks to reward managers for behaviour that drives key strategic objectives of the business

Our total remuneration approach is business driven, performance sensitive and market-competitive. Reward at BT is managed within a framework and plays a key role in sustaining a high performance culture.

For progressively more senior managerial positions, a substantial proportion of remuneration is variable and dependent upon performance. This aligns the interests of employees and shareholders. Total remuneration is calibrated to deliver market competitive rewards at formally targeted levels of personal and corporate performance, with the opportunity to earn exceptional levels of remuneration for exceptional levels of performance.

There are five key features of the reward framework: transparency, market alignment, role focus, performance-orientation and choice.

As far as transparency goes, salary ranges are published on the company intranet for all reward framework positions, covering around 40,000 managers and professionals. Within job families, role profiles are consistent across the company.

Salary ranges, on-target bonus and equity levels are aligned with the market rate across a range of comparable organisations and geographies. This ensures that BT remains competitive, and is able to recruit, motivate and retain the right people.

BT has also introduced a new job family approach, based on job roles replacing the old grade structure.

As for performance orientation, reward decisions are based on capability and proven contribution through the achievement of objectives.

In addition, BT has a flexible benefits scheme, named Choices, which enables employees to select benefit structures that optimise the value of their overall employment package in a way that best reflects their personal circumstances.

The above approach is designed to ensure that everyone knows exactly where they stand in relation to both the internal and external jobs market, and that they understand how their performance influences their reward.

BT continually reviews its approach to reward to ensure that it meets business needs. It has been working with Sir Andrew Likierman, professor of management practice in accounting at the London Business School. His thesis Resilience: how companies prepare for success in the future, is that organisational success may be dependent as much upon the ability of an organisation to be resilient, that is, its ability to look beyond historical measures of success and to adapt its business model dynamically to that which will make it successful in the future, as on its ability to focus upon its capacity to sustain its results within its existing business model.

This implies a need for reward mechanisms with measures of performance that are different from those typically prevalent in companies today.

BT is evaluating a new form of employment contract. This could enable certain employees to place material levels of pay “at risk”, with the potential for leveraged rewards, dependent on measurement criteria that operate beyond those in the “normal” bonus arrangements.

The existing bonus scheme rewards strong operational performance. However, the steeper trajectory of rewards available, under the new type of contract, is consistent with the requirement to deliver against strategic objectives calibrated at a level that ensures the creation of long-term value.

Critical success factors in the management of these plans include the identification and calibration of objectives and or milestones that are aligned with broad strategic priorities. This maintains a strong focus on managerial behaviours, for example by looking at how results are achieved, as well as what is achieved, and ensures that these complement the need to deliver shorter-term operational performance.

The measurement of progress on strategy is typically more subjective than, for example, performance against financial targets. Measurement of this can lead to more uncertain outcomes and can be uncomfortable for all parties in the process. However, in theory at least, if management maintains focus on the delivery of key strategic objectives, this should lead to sustained improvements in performance.